Executives' pay, and why, listed with stock's graph

NEW PROXIES SPILL THE BEANS

NEW YORK -- This year's batch of proxy statements, which are just starting to hit shareholders' mailboxes, should prove to be a lot more exciting -- and revealing -- reading than their predecessors.

New government rules require that proxy statements contain three new sections that are bound to interest -- and, most importantly, be understandable -- to any shareholder. The statements, which companies are required to provide to shareholders before they vote by proxy on company matters, must clearly show how much top executives are being paid, including stock options, and how well the company's stock performed. They also must contain a statement from the board of directors' compensation committee justifying the executives' pay.

The changes are the Securities and Exchange Commission's response to shareholder outcry over escalating executive pay. Shareholders, particularly large institutional ones, have grumbled that executive compensation has skyrocketed regardless of how the companies fared.

"This is a very, very important change in the area of executive compensation," said James Head of Institutional Shareholders Inc.

Mr. Head said the changes will provide a clear link between executive pay and company performance. The company's stock performance is to be charted over five years next to an index showing similar companies and a standard stock market index, the S&P 500.

The compensation committee's report is intended to explain why the executives are paid as they are. The idea is to encourage boards to link pay with stock performance, something that only one-third of U.S. corporations require.

The most common -- and until now confusing -- method of linking pay with performance has been stock options, which allow an employee to buy up to a set number of shares at a certain price that is good for some length of time. Until now, stock options have sometimes obscured how much an executive really received. And often the stock price was set so low there was little incentive to improve stock performance. Executives could exercise the option to buy the stock and sell it for a huge profit the same day.

For example, many companies with stocks trading above $20 offer executives the right to buy shares for $1. Unless the company goes bankrupt, the executive can buy the stock at the $1 price and always make an instant profit.

Company analysts hope the new proxies will force companies into offering executives stocks priced closer to market value. This would mean that the executives could buy the stock, but have to work to improve the stock price before they would be able to sell at a significant profit.

Only a handful of the 13,000 companies that will file proxy statements this year have issued them thus far, including chewing-gum manufacturer William Wrigley Jr. Co. of Chicago. Wrigley's statement includes a detailed description of the company's stock incentive plan, a table showing how Wrigley's stock has overtaken other food stocks and a chart showing the top executives' compensation, including a base pay of $430,000 for CEO William Wrigley and a $270,000 bonus.

A few other companies have filed preliminary proxy statements that illustrate how revealing the new format can be.

Citicorp's, for example, shows its stock on the rebound after significantly underperforming other bank stocks. Chief Executive Officer J. S. Reed was paid a $1.2 million salary plus a $1 million incentive bonus. He also has received options worth $4 million -- all awarded when Citicorp was one of the nation's worst-performing banks.